2025 AP Macroeconomics Free-Response Questions
Advanced PlacementEconomicsFree Response
3 questions20 pts
3 gradable20 rubric criteria0 dependencies
q1
Question 1
1. Assume that the economy of Vortania is in long-run equilibrium. A. Draw a correctly labeled graph of the short-run and long-run Phillips curves for the economy of Vortania, and label the long-run equilibrium point as P. B. Assume that new residential construction projects are being implemented in Vortania. i. Will real output in Vortania increase, decrease, or remain the same in the short run? Explain. ii. Assuming no change in inflationary expectations, on your graph in part A, show the short-run effect of the new residential construction projects on Vortania's economy, labeling the new short-run equilibrium point as S. C. Vortania and Rhodara are trading partners with flexible exchange rates. The currency of Vortania is the Vortanian crown (VTC), and the currency of Rhodara is the Rhodaran mark (RHM). Assume that Vortania's capital and financial account (CFA) balance is zero. Now assume that Vortania imposes new tariffs on imports from Rhodara. Draw a correctly labeled graph of the foreign exchange market for the Vortanian crown, and show the effect of the tariffs on the SUPPLY of the Vortanian crown and the international value of the Vortanian crown. D. Based solely on the change in the international value of the Vortanian crown shown in part C, will Vortania's net exports increase, decrease, or remain the same in the short run? E. Based on the change in net exports identified in part D, what will happen to each of the following in the short run? i. The capital and financial account (CFA) balance in Vortania. Explain. ii. Employment in Vortania F. Assume the central bank of Vortania wants to return the Vortanian crown to its international value before the imposition of the tariffs. Would the central bank buy or sell Vortanian crowns in the foreign exchange market? Explain.
Rubric Criteria (10)
C1Draw a correctly labeled graph of the short-run Phillips curve (SRPC).
1.0000pts
C2The graph must include a correctly labeled long-run Phillips curve (LRPC) and show a point labeled P at the intersection of the short-run and long-run Phillips curves.
1.0000pts
C3State that real output will increase and explain that the new residential construction projects increase investment spending, which increases aggregate demand.
1.0000pts
C4On the graph from part A, show a point labeled S on the SRPC to the left of point P.
1.0000pts
C5Draw a correctly labeled graph of the foreign exchange market for the Vortanian crown.
1.0000pts
C6The graph must show a leftward shift in the supply curve of the Vortanian crown, resulting in an appreciation of the Vortanian crown.
1.0000pts
C7State that Vortania’s net exports will decrease.
1.0000pts
C8State that the capital and financial account (CFA) balance in Vortania will move into surplus and explain that the current account (CA) moved into deficit and the balance of payments must balance (CA+CFA=0).
1.0000pts
C9State that employment in Vortania will decrease.
1.0000pts
C10State that the central bank of Vortania would sell Vortanian crowns in the foreign exchange market and explain that the increased supply of the Vortanian crown will cause it to depreciate.
1.0000pts
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q2
Question 2
2. The economies of Country L and Country A are currently in short-run equilibrium at output levels below full employment. Both countries intend to use monetary policy to close their output gaps. Country L has a banking system with limited reserves, and Country A has a banking system with ample reserves. A. What open-market operation would Country L implement to move the economy toward full employment in the short run? B. What specific monetary policy action would Country A implement to move the economy toward full employment in the short run? C. Draw a correctly labeled graph of the reserve market in Country A, and show the effect of the monetary policy action identified in part B on the policy rate. D. Assume instead that no policy actions are taken in Country A and that the economy remains in short-run equilibrium at an output level below full employment. Will short-run aggregate supply in Country A increase, decrease, or remain the same as the economy self-adjusts in the long run? Explain.
Rubric Criteria (5)
C1State that the central bank of Country L would buy bonds.
1.0000pts
C2State that the central bank of Country A would decrease its administered interest rates or decrease interest on reserves.
1.0000pts
C3Draw a correctly labeled graph of the reserve market with the supply curve intersecting the demand curve in the range of ample reserves.
1.0000pts
C4The graph must show a decrease in the administered interest rates, resulting in a decrease in the policy rate; OR the graph must show a decrease in the lower bound of the demand curve for reserves, resulting in a decrease in the policy rate.
1.0000pts
C5State that short-run aggregate supply will increase until it reaches full employment and explain that the increase in short-run aggregate supply in the long run will be caused by a decrease in input prices (e.g., nominal wages) and/or inflationary expectations.
1.0000pts
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q3
Question 3
3. The table provided shows the quantities and unit prices of shirts, bread, and pants, the only three goods produced in the country of Middleland in 2021 and 2022. Assume that 2021 was the base year. | | Shirts | Bread | Pants | | Unit Prices in 2021 | $11 | $4 | $12 | | Unit Prices in 2022 | $10 | $5 | $15 | | Quantities Produced in 2021 and 2022 | 50 | 70 | 30 | A. Was the real GDP in 2021 in Middleland greater than, less than, or equal to the nominal GDP in 2021? Explain. B. Calculate the real GDP in Middleland in 2022. Show your work. C. Assume that Middleland was in short-run equilibrium in 2022 and that POTENTIAL real GDP was $1,150 in 2022. Draw a correctly labeled graph of the aggregate demand, short-run aggregate supply, and long-run aggregate supply curves for Middleland in 2022, and show each of the following. i. The equilibrium real output and price level, labeled Y₁ and PL₁, respectively ii. The full-employment output, labeled Y_F D. Assume the marginal propensity to consume in Middleland is 0.8. Calculate the minimum change and state the direction of change in government spending required to close the output gap in the short run in Middleland. Show your work.
Rubric Criteria (5)
C1State that the real GDP in 2021 was equal to the nominal GDP in 2021 and explain that because 2021 is the base year, no price level changes have occurred, and real values always equal nominal values in the base year.
1.0000pts
C2Calculate the real GDP in Middleland in 2022 as $1,190 and show the work: Real GDP = ($11 × 50) + ($4 × 70) + ($12 × 30) = $1,190.
1.0000pts
C3Draw a correctly labeled aggregate demand–aggregate supply graph that shows PL1 and Y1 at the intersection of the aggregate demand (AD) and short-run aggregate supply (SRAS) curves.
1.0000pts
C4The graph must show a vertical long-run aggregate supply (LRAS) curve to the left of Y1 and label the full-employment output as YF.
1.0000pts
C5Calculate the minimum change in government spending as a decrease of $8 and show the work: Output Gap = ($1,150 − $1,190) = −$40; Spending Multiplier = 1 / (1 − 0.8) = 5; Minimum Change in Government Spending = −$40 / 5 = −$8.
1.0000pts
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